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Unformatted text preview: 20/02/2008 11:03:00 Demand and Supply Analysis Equilibirum A situation that will tend to persist over time. (Intersection in a graph?) o Demand Curve: o Determinants of Demand: (Pizza) Price of good Prices of substitutes (Calzones and Meatball subs) and complements (beer soda) Income Tastes and Expectations (like if you expect to make more in a few months you may charge more on your credit card now it'd be a bad idea though). Population o Pizza= x (Px) Price of substitutes and complements (Py) Income (I) Tastes and Expectations (T) Population (POP) Demand Equation: Q X = F ( PX, PY, I, T, POP ) Q
D X (look in online TB illustrated properly in there) D Make some assumptions: ceteris paribus assumption: X (Bar over it) means that X is held constant. Change in quantity and demand Results in change in Px Only Movement along a given demand curve Change in demand: results from a change in Px, I, T, Pop Shift on entire demand curve An increase in demand maybe caused by: An increase in price caused of a substitute A decrease in price of a complement. An increase in income if good is normal. Most goods are considered normal goods A decrease in income if the good is inferior. Examples of inferior goods: Ramen noodles (if you were rich you could by actual food like potatoes and steak), mass transit (v. car) , SPAM (v. real ham), generic cereal and generic soda. An increase in tastes. Increase in population Supply Equation: (check TB p. 9) 20/02/2008 11:03:00 20/02/2008 11:03:00 ...
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